Unassociated Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2009
Or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934
For the transition period from: _____________ to _____________

Commission file number: 001-34523

interCLICK, Inc.
(Exact name of registrant as specified in its charter)

Delaware
01-0692341
(State or Other Jurisdiction
(I.R.S. Employer
of Incorporation or Organization)
Identification No.)

257 Park Avenue South
Suite 602
New York, NY 10010
 (Address of Principal Executive Office) (Zip Code)

(646) 722-6260
(Registrant’s telephone number, including area code)
 
 
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.001
 
The NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨   Yes   x   No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨   Yes   x   No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      x   Yes  ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  ¨ No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this  chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or  information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.      x 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer
¨
   
Accelerated filer
¨
 
Non-accelerated filer
¨
   
Smaller reporting company
x
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  ¨   Yes    x No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $45,860,171.  

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.  23,694,272 shares were outstanding as of March 26, 2010.

 
 

 
 
INDEX
 
Part I
Item 1. Business.
3
Item 1A. Risk Factors.
5
Item 1B. Unresolved Staff Comments.
5
Item 2. Properties.
5
Item 3. Legal Proceedings.
5
Item 4. (Removed and Reserved).
5
   
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
6
Item 6. Selected Financial Data.
7
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
7
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
19
Item 8. Financial Statements and Supplementary Data.
19
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
19
Item 9A. Controls and Procedures.
19
Item 9A(T). Controls and Procedures.
19
Item 9B. Other Information.
20
   
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
20
Item 11. Executive Compensation.
23
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
28
Item 13. Certain Relationships and Related Transactions, and Director Independence.
29
Item 14. Principal Accountant Fees and Services.
29
   
PART IV
Item 15. Exhibits, Financial Statement Schedules.
30
   
 
 
2

 
 
PART I
 
Item 1.           Business.

Company Overview

interCLICK, Inc. is a next-generation online display advertising network that combines complete data and inventory transparency with best in breed targeting solutions. Powered by our proprietary data-enrichment technology platform, Open Segment Manager (“OSM”), interCLICK develops coherent data strategies with agencies empowering them to discover which facts drive optimal campaign performance no matter what the objective is, and connecting them to their most valuable audiences at unprecedented scale.  We generate our revenue through the sale of online display advertising which is placed on third party publisher websites.

Industry Overview

According to ThinkEquity LLC, the non-premium display advertising sector is projected to be the highest-growth segment of the online advertising market.  For the period from 2008 to 2013, ThinkEquity LLC expects non-premium display to grow at a 22% compound annual growth rate. In its 2009 Internet Investment Guide, J.P. Morgan stated that it believed that performance-based advertising will continue to gain market share and that the recessionary environment will only accelerate its growth.  Lower ad budgets and economic concerns have made advertisers place a higher value on clear return on investments or ROIs.  Based on our current experience, advertisers’ focus on “return on ad spend” intensified with the weakened economy.  As such, we expect market share gains will accrue to those ad networks with the most advanced behavioral targeting capabilities.

Seasonality

Our business is subject to seasonal fluctuations.  The fourth quarter of the calendar year, during the holiday season, is our strongest with respect to revenues.  While we are a relatively new company, our experience to date and our management’s knowledge of the advertising industry indicates that the first calendar quarter is our slowest quarter.  Because so many advertisers operate on a calendar year, advertising decisions tend to be put off until January when new budgets are implemented.  This has a tendency to reduce revenues for the first quarter compared to other quarters.
 
Customers

Our clients are shifting more of their marketing budgets from traditional media channels such as direct mail, television, radio and newspapers to the Internet because of increasing usage of the Internet by their potential customers.  We focus on providing measurable Internet marketing services to our clients in a way that protects and enhances their brands and their relationships with prospective customers.  In order to provide opportunities for advertisers, we buy display advertising impressions from publishers or companies that maintain websites and seek to monetize their websites through the sale of advertising.  In 2009, we derived more than 14% of our revenues from one customer.  In 2008, we derived more than 10% of our revenues from a different customer, which was not a 10% customer in 2007.  We deliver advertising campaigns for a wide variety of advertisers and advertising agency partners with no overwhelming concentration on any specific industry vertical.  As such, our existing advertiser base includes numerous industries including, but not limited to, consumer packaged goods, retail, electronics, Internet, computer software, automotive, travel, pharmaceuticals, wireless communications and the entertainment industry.

Sales and Marketing

We sell and market our solutions through our sales team of approximately two dozen experienced sales persons as of March 2010.  We carefully select industry-veteran sales managers adept at articulating our technically-driven, value-oriented solutions.  As part of our strategic plan, we opened sales offices in 2008 and early 2009 in Chicago, Los Angeles and San Francisco as complements to the sales team based in our New York head office.  We expect to increase our sales staff by more than 10% for the balance of 2010.

We believe that marketers are becoming increasingly focused on delivering specific and measurable results.  Our clients want to better understand how their marketing spending meets measurable objectives.

 
3

 

Competition
 
We face intense competition in the Internet advertising market from other online advertising and direct marketing networks for a share of client advertising budgets.  We expect that this competition will continue to intensify in the future as a result of industry consolidation, the maturation of the industry and low barriers to entry.  Additionally, we compete for advertising budgets with traditional media including television, radio, newspapers and magazines.  Furthermore, many of the advertising, media, and Internet companies possess greater resources and are more adequately capitalized than interCLICK.  We compete for business on the basis of a number of factors including ROI, price, access to targeted media, ability to deliver large volumes or precise types of customer prospects and reliability.
 
Our ability to compete depends upon several factors, including the following:
 
·
the timing and market acceptance of our new solutions and enhancements to existing solutions developed by us;

·
continuing our relationships with top quality publishers;

·
our customer service and support efforts;

·
our sales and marketing efforts; and

·
our ability to add value to our clients and remain price competitive.
 
Research and Development Expenses

We recognized research and development costs of $48,200 and $0 for the years ended December 31, 2009 and December 31, 2008, respectively.  See below for discussion regarding our anticipated innovation-related expenses in 2010.

Regulation

In February 2009, the Federal Trade Commission (the “FTC”) issued informal guidance about companies like us that engage in behavioral targeting.  The essence of the report is that self regulation to protect privacy rights must occur or the FTC will declare certain practices to be unfair trade practices.  Our management viewed this FTC report as being favorable and believes its business model will not be adversely affected from self regulation.  Many states also have adopted what are commonly called “Little FTC Unfair Trade Practice Acts.” State Acts include the power to seek injunctions, triple damages and attorneys’ fees.

Employees

As of March 19, 2010, interCLICK had a total of 91 employees, of which 90 were full-time employees.  None of these employees is represented by a labor union.  Management believes that our relations with our employees are good.  At December 31, 2009, we had a total of 78 employees, of which 78 were full-time employees.
 
Corporate History and Acquisitions

We were formed in Delaware on March 4, 2002 under the name Outsiders Entertainment, Inc. On August 28, 2007, we completed a reverse merger and acquired Customer Acquisition Network, Inc.  In connection with the merger, we changed our name to Customer Acquisition Network Holdings, Inc.  Three days later, on August 31, 2007, we acquired Desktop Interactive, Inc. (“Desktop”).  On June 25, 2008, we changed our name to interCLICK, Inc.

On January 4, 2008, we acquired Options Newsletter, Inc., a privately-held Delaware corporation primarily engaged in the email service provider business. On June 23, 2008, we sold the Options Newsletter business to Options Media Group Holdings, Inc. (“OPMG”).

Intellectual Property
 
We currently rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights.  We enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our software documentation and other proprietary information.

 
4

 

Headed by our Chief Technology Officer, we employ a team of more than 20 experienced technology specialists in our South Florida office.  Our technology and product management teams have developed a new state-of-the-art technology platform called OSM that we believe is the first data enrichment solution designed to help advertisers and agencies operationalize data effectively—to discover which facts drive optimal campaign performance, create more valuable audiences from those facts, and connect to those audiences at unprecedented scale.  This new solution is an enhancement to our current technology platform which is a leading solution providing advanced behavioral targeting and transparency.

We are now demonstrating our new OSM technology platform, and have been receiving positive feedback from our clients.  To continue further enhancing our platform and market our technology solutions, we plan to spend approximately $4 million in 2010 in compensation and employee-related costs for the approximately two dozen full-time equivalent employees focused on innovation-related efforts in 2010, including development of OSM.

Item 1A.        Risk Factors.

Not applicable to smaller reporting companies.  See Item 7 for the principal risk factors facing interCLICK.

Item 1B.        Unresolved Staff Comments.
 
None.
 
Item 2.           Properties.

Our principal executive offices are located in a leased facility in New York, New York, consisting of approximately 5,786 square feet of office space under a lease that expires in December 2014.  This facility accommodates our principal sales, marketing, operations, finance and administrative activities.  Because of our rapid growth, we expect to move into new executive offices, consisting of 16,840 square feet, by the end of April 2010 and have an agreement to sublet our current executive offices.  Our technology offices are located in Boca Raton, Florida, consisting of approximately 7,810 square feet of office space under a lease that expires in February 2015.  We also lease sales offices in Chicago, Illinois (1,269 square feet), San Francisco, California (1,324 square feet), and Los Angeles, California (under 1,000 square feet).  Except for our current executive offices, we believe that our current facilities are sufficient for our current needs.  We intend to add new facilities and expand our existing facilities as we add employees and expand our markets, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.
 
Item 3.           Legal Proceedings.

           From time to time, we may become involved in legal proceedings and claims arising in the ordinary course of our business.  We are not currently a party to any material litigation.

Item 4.           (Removed and Reserved).

 
5

 

PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Since November 5, 2009, our common stock has been listed on the NASDAQ Capital Market under the symbol “ICLK”.  Prior to being listed, our common stock was quoted on the Over-the-Counter Bulletin Board.

The last reported sale price of our common stock as reported by NASDAQ on March 26, 2010 was $3.72.  As of that date, there were 60 record holders.

The following table provides the high and low bid price information for our common stock for the periods our stock was quoted on the Bulletin Board and the high and low sales prices for the periods our stock has been listed on NASDAQ.  For the period our stock was quoted on the Bulletin Board, the prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
 
Year
 
Quarter Ended
 
Prices (1)
 
       
High
   
Low
 
                 
2009
 
March 31
  $ 2.10     $ 1.10  
   
June 30
  $ 2.70     $ 1.20  
   
September 30
  $ 4.50     $ 2.20  
   
December 31
  $ 6.00     $ 4.00  
                     
2008
 
March 31
  $ 12.50     $ 7.12  
   
June 30
  $ 7.60     $ 5.20  
   
September 30
  $ 6.98     $ 2.24  
   
December 31
  $ 3.84     $ 0.90  

(1)
On October 23, 2009, we completed a 1-for-2 reverse stock split.  All prices in the table have been adjusted for the reverse split.

Dividend Policy

We have not paid cash dividends on our common stock and do not plan to pay such dividends in the foreseeable future.  Our Board of Directors will determine our future dividend policy on the basis of many factors, including results of operations, capital requirements, and general business conditions.

Recent Sales of Unregistered Securities

In addition to those unregistered securities previously disclosed in reports filed with the Securities and Exchange Commission (“SEC”), we have sold securities without registration under the Securities Act of 1933 (the “Securities Act”) in reliance upon the exemption provided in Section 4(2) and Rule 506 thereunder as described below.  All numbers have been adjusted to give effect to a one-for-two reverse stock split effective October 23, 2009.
 
Name 
 
Date Sold
 
No. of
Securities
 
Reason for Issuance
               
Consultant
 
October 7, 2009
   
150,000 three-year warrants
exercisable at $4.24 per share
 
Services
               
Consultant
 
December 24, 2009
   
2,500 shares of common stock
 
Services
 
 
6

 

Item 6.           Selected Financial Data.
 
Not required for smaller reporting companies.
 
 
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under “Risk Factors” at the end of this Item 7 in this report.

This following discussion and analysis includes both financial measures in accordance with GAAP, as well as a non-GAAP financial measure, EBITDA. EBITDA represents operating income before interest, taxes, depreciation and amortization, including stock-based compensation.  EBITDA should be viewed as supplemental to, and not as an alternative for, net income or loss, income or loss from operations or any other measure for determining operating performance or liquidity, as determined under GAAP. We have included a reconciliation of our non-GAAP financial measure to net income. See page 10 of this report.

EBITDA is used by our management as an additional measure of our performance for purposes of business decision-making, including developing budgets and managing expenditures. Period-to-period comparisons of EBITDA helps our management identify additional trends in our financial results that may not be shown solely by period-to-period comparisons of income or loss, or income or loss from operations. Our management recognizes that EBITDA has inherent limitations because of the excluded items, particularly those items that are recurring in nature.
 
We believe that the presentation of EBITDA is useful to investors in their analysis of our results for reasons similar to the reasons why our management finds it useful and because it helps facilitate investor understanding of decisions made by our management in light of the performance metrics used in making those decisions. In addition, we believe that providing EBITDA, together with a reconciliation to GAAP, helps investors make comparisons between interCLICK and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.

 Company Overview

interCLICK is a next-generation online display advertising network that combines complete data and inventory transparency with best in breed targeting solutions. We generate our revenue through the sale of online display advertising which is placed on third-party publisher websites.

Significant events which have affected our results of operations include:

 
·
2009 revenues of $55,258,703 increased by 146% compared to 2008 revenues of $22,452,333;
 
·
2009 gross profit margins were 45.6% as compared to 30.4% for 2008;
 
·
Headcount increased to 78 people at December 31, 2009, from 37 people at December 31, 2008;
 
·
2009 EBITDA was $4,612,738, compared to an EBITDA loss of $(3,987,390) in 2008;
 
·
We achieved positive EBITDA for five straight quarters beginning with the fourth quarter of 2008;
 
·
2009 net income was $501,831 or $0.03 per share (basic) and $0.02 per share (diluted), compared to a net loss of $(12,025,539), or ($0.65) per share for 2008; and
 
·
We increased our credit line to $7,000,000 from $5.5 million in September 2009 to support the growth of our business.

Results of Operations

The following table presents our results of operations for the years ended December 31, 2009 and 2008. It should be noted that our results of operations and our liquidity and capital resources discussions focus primarily on the operations of interCLICK while referring to Options Acquisition as a discontinued operation.  The following discussion of our costs reflects the reclassification of our expense categories we implemented with the third quarter of 2009; all prior periods have been retroactively adjusted.

 
7

 

   
For the Year
Ended
December 31,
2009
   
For the Year
Ended
December 31,
2008
 
Revenues
  $ 55,258,703     $ 22,452,333  
Cost of revenues
    30,072,627       15,634,096  
Gross profit
    25,186,076       6,818,237  
                 
Operating expenses:
               
Sales and marketing
    8,748,503       3,394,753  
General and administrative
    12,296,404       8,351,612  
Technology support
    3,237,528       1,245,942  
Amortization of intangible assets
    188,780       418,508  
Total operating expenses
    24,471,215       13,410,815  
                 
Operating income (loss) from continuing operations
    714,861       (6,592,578 )
                 
Other income (expense):
               
Interest income
    1,053       17,095  
Loss on settlement of debt
    -       (20,121 )
Loss on sale of available-for-sale securities
    (55,233 )     (116,454 )
Other than temporary impairment of available-for-sale securities
    (1,042,470 )     -  
Loss on disposal of property and equipment
    -       (13,635 )
Warrant derivative liability expense
    (665,690 )     -  
Interest expense (including amortization of debt discount)
    (589,624 )     (1,526,298 )
Total other expense
    (2,351,964 )     (1,659,413 )
                 
Loss from continuing operations before income taxes
    (1,637,103 )     (8,251,991 )
                 
Income tax benefit
    2,139,640       1,687,305  
                 
Equity in investee's loss, net of taxes
    -       (653,231 )
                 
Income (loss) from continuing operations
    502,537       (7,217,917 )
                 
Discontinued operations:
               
Loss from discontinued operations, net of tax
    -       (1,235,940 )
Loss on sale of discontinued operations, net of tax
    (706 )     (3,571,682 )
Loss from discontinued operations
    (706 )     (4,807,622 )
                 
Net income (loss)
    501,831       (12,025,539 )
                 
Other comprehensive income (loss):
               
Unrealized gains (losses) on securities:
               
Unrealized loss on available-for-sale-securities, net of tax
    (899,999 )     (314,158 )
Reclassification adjustments for losses included in net income (loss), net of tax
    1,097,703       116,454  
Total other comprehensive income (loss), net of income taxes
    197,704       (197,704 )
                 
Comprehensive income (loss)
  $ 699,535     $ (12,223,243 )
                 
Basic earnings (loss) per share:
               
Continuing operations
  $ 0.03     $ (0.39 )
Discontinued operations
  $ -     $ (0.26 )
Net income (loss)
  $ 0.03     $ (0.65 )
                 
Diluted earnings (loss) per share:
               
Continuing operations
  $ 0.02     $ (0.39 )
Discontinued operations
  $ -     $ (0.26 )
Net income (loss)
  $ 0.02     $ (0.65 )
                 
Weighted average shares:
               
Basic
    19,950,379       18,568,951  
Diluted
    20,953,862       18,568,951  

 
8

 

Year Ended December 31, 2009 Compared with Year Ended December 31, 2008
 
Unless otherwise indicated, the following discussion relates to our continuing operations and does not include the operations of Options Acquisition which we sold in 2008.  We acquired that business in January 2008 and sold it in June 2008 resulting in a net loss on sale of $3,571,682, net of income taxes.
 
Revenues
 
Revenues for the year ended December 31, 2009 increased to $55,258,703 from $22,452,333 for the year ended December 31, 2008, an increase of 146%.  The increase is primarily attributable to growth of our advertiser base through our expanded national sales force and through budget increases among existing advertisers.

interCLICK is particularly sensitive to seasonality given that the majority of its revenues are tied to CPM (cost-per-thousand) campaigns, which are strongest in the fourth quarter and weakest in the first quarter.  Despite the continued weakness of the broader economy in 2008 and 2009, the overall U.S. Internet audience based on comScore data expanded to 201,689,065 average monthly viewers in the fourth quarter of 2009, an increase of 5.8%, as compared to the fourth quarter of 2008.  For the same period indicated, interCLICK experienced average monthly viewers growth of 6.0%, while revenues grew by 158%.

Given the continued overall growth in online advertising, coupled with other strategic initiatives undertaken by interCLICK, including the continued enhancement of our technology platform and our continued ability to acquire top tier advertising impressions from publishers, we expect to continue to increase our advertising customer base and revenues on a year-over-year basis.
 
Revenues from branded advertisers account for the substantial majority of our revenues.  During the year ended December 31, 2009, revenues from such advertisers accounted for more than 95% of revenues.
 
Cost of Revenues and Gross Profit
 
Cost of revenues for the year ended December 31, 2009 increased to $30,072,627 from $15,634,096 for the year ended December 31, 2008, an increase of 92.4%.  The increase is primarily attributable to the growth in advertising campaigns requiring the purchase of appropriate levels of advertising impressions from publishers and higher third-party data fees. Cost of revenues is comprised primarily of the amounts we paid to website publishers on interCLICK’s online advertising network, amounts paid to third-party data providers, and ad serving and rich media expenses directly associated with a given campaign.  Cost of revenues represented 54.4% of revenues for the year ended December 31, 2009 compared to 69.6% of revenues for the year ended December 31, 2008. The decrease is primarily attributable to: (1) improvements in our supply chain management platform, resulting in a better match between acquired advertising impressions and advertising campaign demand and (2) targeting efficiencies achieved through our proprietary technology platform.

Gross profit for the year ended December 31, 2009 increased to $25,186,076 from $6,818,237 for the year ended December 31, 2008, an increase of 269%.  Our gross margin was 45.6% for the year ended December 31, 2009 compared to 30.4% for the year ended December 31, 2008.  While we expect gross profit to increase year-over-year in 2010, we expect gross margins will remain relatively consistent in the near-term.
 
Operating Expenses

Operating expenses consist of general and administrative, sales and marketing, technology support, and amortization of intangible assets.  These are discussed in further detail below.  Total operating expenses for the year ended December 31, 2009 increased to $24,471,215 from $13,410,815 for the year ended December 31, 2008, an increase of 82.5%.  The increase is primarily attributable to headcount expansion at year end from 37 employees to 78 employees.  We expect to hire up to 50 new employees in 2010 to support the growth of our business and the ongoing innovation, development and marketing of OSM.  Approximately two dozen of our employees, for a total cost of approximately $4 million, will be spending the majority of their time on OSM in 2010.  Furthermore, we anticipate stock-based compensation expense of approximately $4 million in 2010.

General and Administrative  

General and administrative expenses consist primarily of executive, administrative, operations and product support compensation (including non-cash stock based compensation), facilities costs, insurance, depreciation, professional fees, investor relations fees and bad debt expense.  General and administrative expenses for the year ended December 31, 2009 increased to $12,296,404 from $8,351,612 for the year ended December 31, 2008, an increase of 47.2%.   General and administrative expenses represented 22.3% of revenues for the year ended December 31, 2009 compared to 37.2% of revenues for the year ended December 31, 2008.

 
9

 

Sales and Marketing

Sales and marketing expenses consist primarily of compensation (including non-cash stock based compensation) for sales and marketing and related support resources, sales commissions and trade show expenses. Sales and marketing expenses for the year ended December 31, 2009 increased to $8,748,503 from $3,394,753 for the year ended December 31, 2008, an increase of 158%.   The increase is primarily attributable to our national sales-force expansion.  Sales and marketing expenses represented 15.8% of revenues for the year ended December 31, 2009 compared to 15.1% of revenues for the year ended December 31, 2008.

Technology Support

Technology support consists primarily of compensation (including non-cash stock based compensation) of technology support and related resources. Technology support and related resources have been directed primarily towards continued enhancement of our platform, our development of our new OSM platform, including integration of third party data providers, upgrades to our advertising serving platform, and ongoing maintenance and improvement of our technology infrastructure.  Technology support expenses for the year ended December 31, 2009 increased to $3,237,528 from $1,245,942 for the year ended December 31, 2008, an increase of 160%. The increase is primarily attributable to expenditures necessary to support interCLICK’s increased business and our development of OSM. Technology support expenses represented 5.9% of revenues for the year ended December 31, 2009 compared to 5.5% of revenues for the year ended December 31, 2008.

Amortization of Intangible Assets

Amortization of intangible assets includes amortization of customer relationships, developed technology and a domain name acquired through the Desktop acquisition.  Amortization of intangible assets for the year ended December 31, 2009 decreased to $188,780 from $418,508 for the year ended December 31, 2008, a decrease of 54.9%.  The decrease is primarily attributable to the accelerated amortization applicable to acquired customer relationships in prior periods.   Amortization of intangible assets represented 0.3% of revenues for the year ended December 31, 2009 compared to 1.9% of revenues for the year ended December 31, 2008.

Net Income (Loss)

Net income for the year ended December 31, 2009 was $501,831 compared to a net loss of $(12,025,539) for the year ended December 31, 2008.  The change was attributable to strong revenue and gross profit growth, partially offset by higher operating expenses which grew at a slower pace than revenue.  Furthermore, the 2008 comparable period loss included a loss from discontinued operations, net of income taxes, of $(4,807,622), and equity in investee’s loss, net of income taxes, of $(653,231).
 
Reconciliations of Certain Non-GAAP Measures

   
For the Year
Ended
December 31,
2009
   
For the Year
Ended
December 31,
2008
 
             
GAAP net income (loss)
  $ 501,831     $ (12,025,539 )
                 
Loss from sale of discontinued operations, net of tax
    706       3,571,682  
Loss from discontinued operations, net of tax
    -       1,235,940  
                 
GAAP income (loss) from continuing operations
    502,537       (7,217,917 )
                 
Income tax benefit
    (2,139,640 )     (1,687,305 )
Equity in investee's loss, net of taxes
    -       653,231  
                 
GAAP Loss from continuting operations before income taxes
    (1,637,103 )     (8,251,991 )
                 
Interest expense
    589,624       1,526,298  
Interest income
    (1,053 )     (17,095 )
Loss on change in warrant derivative liability
    665,690       -  
Loss on sale of available-for-sale securities
    55,233       116,454  
Other than temporary impairment of available for sale securities
    1,042,470       -  
Loss on settlement of debt
    -       20,121  
Loss on disposal of property and equipment
    -       13,635  
                 
GAAP Operating income (loss) from continuing operations
    714,861       (6,592,578 )
                 
Stock-based compensation
    3,394,299       1,941,191  
Amortization of intangible assets
    188,780       418,508  
Depreciation
    314,798       245,489  
                 
EBITDA
  $ 4,612,738     $ (3,987,390 )

 
10

 

Liquidity and Capital Resources

Net cash used in operating activities during the year ended December 31, 2009 totaled $3,099,810 and resulted primarily from an increase in accounts receivable of $14,704,746 and deferred tax assets of $2,654,946, partially offset by net income of $501,831, stock-based compensation of $3,394,299, other than temporary impairment of available-for-sale securities of $1,042,470, and increases in accounts payable of $5,645,429 and accrued expenses of $2,843,387.

Net cash used in investing activities during the year ended December 31, 2009 totaled $181,384 and resulted from $215,777 of purchases of property and equipment, offset by proceeds from the sale of OPMG stock of $34,393.

Net cash provided by financing activities during the year ended December 31, 2009 was $16,001,281 and resulted primarily from proceeds of $13,776,670 from sales of common stock and warrants (net of offering expenses), and $1,657,947 received under our credit facility (net of repayments), and excess tax benefits from stock-based compensation of $879,579, partially offset primarily by the repayment of $400,000 of notes payable.  
 
On November 13, 2008, interCLICK entered into a revolving credit facility with Crestmark Commercial Capital Lending, LLC to finance certain eligible accounts receivables of interCLICK in an amount up to $3.5 million (subsequently increased to $4.5 million on February 3, 2009, increased to $5.5 million on April 30, 2009, and increased to $7.0 million on September 2, 2009).  The line of credit expires on May 12, 2010 and is secured by substantially all of the assets of interCLICK, except property and equipment financed elsewhere.

At December 31, 2009, interCLICK had working capital of $16,550,958, including $12,653,958 in cash and cash equivalents.  As of March 29, 2010, interCLICK had approximately $9,200,000 of cash and cash equivalents.  As our business has expanded, interCLICK has had positive EBITDA for the last five quarters. We discuss this non GAAP financial measure and its limitations under Company Overview above. interCLICK continues to expand and had very strong year-over-year revenue growth in each quarter of 2009.  Management anticipates that revenues will continue to increase through 2010.  In addition to our cash and cash equivalents, the unused amount under the Crestmark line of credit available was approximately $6,000,000 at March 29, 2010.  For all of these reasons, interCLICK expects that it has sufficient cash and borrowing capacity to meet its working capital needs for at least the next 12 months.

During 2009, we acquired $706,784 in capital assets, including $491,007 through conventional capital leases to further enhance the features and scale of our technology assets, which is necessary both to support the realization of growth objectives as well as to advance interCLICK’s present competitive position.  During 2010, we expect to acquire approximately $1,500,000 in capital assets, the majority of which will be obtained in the first quarter and financed through capital leases.

Related Party Transactions

No related party transactions had a material impact on our operating results.  See Notes 7 and 14 to our consolidated financial statements.

New Accounting Pronouncements

See Note 2 to our consolidated financial statements included in this report for discussion of recent accounting pronouncements.
 
Critical Accounting Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to, those related to the valuation of accounts receivable and allowance for doubtful accounts, purchase price fair value allocation for business combinations, estimates of depreciable lives and valuation of property and equipment, valuation and amortization periods of intangible assets and deferred costs, valuation of goodwill, valuation of discounts on debt, valuation of derivatives, valuation of investment in available-for-sale securities, valuation of common shares, options and warrants granted for services or recorded as debt discounts or other non-cash purposes including business combinations, the valuation allowance on deferred tax assets, estimates of the tax effects of business combinations and sale of subsidiary, and estimates in equity investee’s losses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.

 
11

 

In response to the SEC’s financial reporting release, FR-60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies”, the Company has selected a more subjective accounting estimation processes for purposes of explaining the methodology used in calculating estimates, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on interCLICK’s financial condition. The accounting estimates are discussed below. These estimates involve certain assumptions that if incorrect could create a material adverse impact on the interCLICK’s results of operations and financial condition.  See Note 2 to the consolidated financial statements.

           With the recent economic recession, management is particularly attentive to the length account receivable collection cycles and the attendant possibility of an increase in bad debts.  However, as collection performance improved during 2009, management reduced bad debt reserves at December 31, 2009, to $383,188 or 1.7% of gross accounts receivable, as compared to $425,000, or 5.6% of gross accounts receivable, as of December 31, 2008.

Management is sensitive to the carrying value of the 7,156,085 OPMG shares held on the balance sheet at $715,608 at December 31, 2009. These shares are valued based on a private transaction in November 2009, rather than the quoted market price.  Historically, management has found that private transactions are among the most economically feasible ways to sell any portion of the Company’s investment in OPMG.  In the future, we may attempt to sell some OPMG shares in the open market which could materially reduce the carrying value of our investment.  See Notes 6 and 11 to the consolidated financial statements.

 Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including those relating to our liquidity, our belief that we have sufficient cash and borrowing capacity to meet our working capital needs for the next 12 months, our expectations regarding gross profit, gross margins, capital expenditures, our expectations regarding increasing our headcount and sales force, our expectations regarding stock-based compensation expense and our belief that our software permits advertisers to obtain more value.  Additionally, words such as “expects,” “anticipates,” “intends,” “believes,” “will” and similar words are used to identify forward-looking statements.

Some or all of the results anticipated by these forward-looking statements may not occur.  Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include, but are not limited to, the Risk Factors which follow, the impact of intense competition, the continuation or worsening of current economic conditions, a potential decrease in corporate advertising spending, a potential decrease in consumer spending and the condition of the domestic and global credit and capital markets. Additionally, these forward-looking statements are presented as of the date this Form 10-K is filed with the Securities and Exchange Commission. We do not intend to update any of these forward-looking statements.

RISK FACTORS

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals.  If any of these risks actually occur, our business, financial condition or results of operations may be materially adversely affected.  In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.

Risks Relating to the Company

Because we have a limited operating history to evaluate our company, the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delay frequently encountered by an early-stage company.

Since we have a limited operating history it will make it difficult for investors and securities analysts to evaluate our business and prospects.  You must consider our prospects in light of the risks, expenses and difficulties we face as an early stage company with a limited operating history.  Investors should evaluate an investment in our company in light of the uncertainties encountered by early-stage companies in an intensely competitive industry.  There can be no assurance that our efforts will be successful or that we will be able to maintain profitability.

If we cannot manage our growth effectively, we may not maintain profitability.

Businesses which grow rapidly often have difficulty managing their growth.  If our business continues to grow as rapidly as we have since August 2007 and as we anticipate, we will need to expand our management by recruiting and employing experienced executives and key employees capable of providing the necessary support.

We cannot assure you that our management will be able to manage our growth effectively or successfully.  Our failure to meet these challenges could cause us to lose money, which will reduce our stock price.

 
12

 

Because of the severity of the global economic recession, our customers may delay in paying us or not pay us at all.  This would have a material and adverse effect on our future operating results and financial condition.

One of the effects of the severe global economic recession is that businesses are tending to maintain their cash resources and delay in paying their creditors whenever possible.  As a trade creditor, we lack leverage unlike secured lenders and providers of essential services.  Should the economy further deteriorate, we may find that either advertisers, their representative agencies or both may delay in paying us.  Additionally, we may find that advertisers will reduce Internet advertising which would reduce our future revenues.  These events would result in a number of adverse effects upon us including increasing our borrowing costs, reducing our gross profit margins, reducing our ability to borrow under our line of credit, and reducing our ability to grow our business.  These events would have a material and adverse effect upon us.

Because we expect to need additional capital to fund our growing operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.

We expect that as our business continues to grow we will need additional working capital. In addition to the proceeds we received from our 2009 registered public offering, we have available $7,000,000 accounts receivable factoring line of credit with a commercial lender which expires in May 2010.   We are currently evaluating our options with respect to extending this line of credit on similar terms with this lender or obtaining a new line of credit elsewhere. This lender is privately-held and we have no access to any information about its financial condition.  Because of the severe impact that the recession has had on the financial services sector, we may be adversely affected in our ability to draw on our line of credit, replace this line of credit or increase the amount we can borrow.  The slowdown in the global economy and the freezing of the credit markets may adversely affect our ability to raise capital.  If adequate additional debt and/or equity financing is not available on reasonable terms or at all, we may not be able to continue to expand our business, and we will have to modify our business plans accordingly.  These factors would have a material and adverse effect on our future operating results and our financial condition.

Even if we secure additional working capital, we may not be able to negotiate terms and conditions for receiving the additional capital that are acceptable to us.  Any future equity capital financings will dilute existing shareholders.  In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to our common stock.  We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us.

If advertising on the Internet loses its appeal, our revenue could decline.  

 Our business model may not continue to be effective in the future for a number of reasons, including the following: click and conversion rates have always been low and may decline as the number of advertisements and ad formats on the Internet increases; companies may prefer other forms of Internet advertising we do not offer, including certain forms of search engine placements; companies may reject or discontinue the use of certain forms of online promotions that may conflict with their brand objectives; companies may not utilize online advertising due to concerns of "click-fraud", particularly related to search engine placements; regulatory actions may negatively impact certain business practices that we currently rely on to generate a portion of our revenue and profitability; and, perceived lead quality may diminish.  If the number of companies who purchase online advertising from us does not continue to grow, we may experience difficulty in attracting publishers, and our revenue could decline.

 If we fail to manage our supply of display advertising impressions (also referred to as “publishing inventory”) and third party data partnerships effectively, our profit margins could decline and should we fail to acquire additional publishing inventory our growth could be impeded.

Our success depends in part on our ability to manage our existing publishing inventory and third party data partnerships effectively.  Our publishers are not bound by long-term contracts that ensure us a consistent supply of display advertising space, which we refer to as inventory.  In addition, publishers can change the amount of inventory they make available to us at any time.  If a publisher decides not to make publishing inventory from its websites available to us, we may not be able to replace this inventory with that from other publishers with comparable traffic patterns and user demographics quickly enough to fulfill our advertisers’ requests, thus resulting in potentially lost revenues.  Additionally, if a third-party data provider stopped offering their data to us, we may not be able to replace this data with another data provider of equal or better effectiveness.  Our ability to maintain our existing data partnerships, as well as attract new data partners, will depend on various factors, some of which are beyond our control.

We expect that our advertiser customers’ requirements will become more sophisticated as the Internet continues to mature as an advertising medium.  If we fail to manage our existing publisher inventory effectively to meet our advertiser customers’ changing requirements, our revenues could decline.  Our growth depends on our ability to expand our publisher inventory.  To attract new customers, we must maintain a consistent supply of attractive publisher inventory.  We intend to expand our inventory by selectively adding to our network new publishers that offer attractive demographics, innovative and quality content and growing web user traffic.  Our ability both to retain current as well as to attract new publishers to our network will depend on various factors, some of which are beyond our control.  These factors include, but are not limited to: our ability to introduce new and innovative services, our efficiency in managing our existing publisher inventory and our pricing policies.  We cannot assure you that the size of our publisher inventory will increase or remain constant in the future.

 
13

 

If the technology that we currently use to target the delivery of online advertisements and to prevent fraud on our network is restricted or becomes subject to regulation, our expenses could increase and we could lose customers or advertising inventory.

The FTC has issued guidelines recommending that Internet advertising firms that engage in behavioral targeting implement industry-wide self-regulation in order to protect the privacy of consumers who use the Internet.  If notwithstanding this report, the FTC were in the future to issue regulations, it may adversely affect what we perceive to be a competitive advantage.  This could increase our costs and reduce our future revenues.

If we make acquisitions, it could divert management’s attention, cause ownership dilution to our shareholders and be difficult to integrate.

Following our acquisition of Desktop in August 2007, we have grown rapidly.  We expect to continue to evaluate and consider future acquisitions.  Acquisitions generally involve significant risks, including difficulties in the assimilation of operations, services, technologies, and corporate culture of the acquired companies, diversion of management's attention from other business concerns, overvaluation of the acquired companies, and the acceptance of the acquired companies’ products and services by our customers.  Acquisitions may not be successful, which can have a number of adverse effects upon us including adverse financial effects and may seriously disrupt our management’s time.  The integration of our acquired operations, products and personnel may place a significant burden on management and our internal resources.  The diversion of management attention and any difficulties encountered in the integration process could harm our business.

It may be difficult to predict our financial performance because our quarterly operating results may fluctuate.

Our revenues, operating results and valuations of certain assets and liabilities may vary significantly from quarter to quarter due to a variety of factors, many of which are beyond our control.  You should not rely on period-to-period comparisons of our results of operations as an indication of our future performance.  Our results of operations may fall below the expectations of market analysts and our own forecasts.  If this happens, the market price of our common stock may fall significantly.  The factors that may affect our quarterly operating results and valuations of certain assets and liabilities include the following:

fluctuations in demand for our advertising solutions or changes in customer contracts;

fluctuations in the amount of available advertising space on our network;
 
the timing and amount of sales and marketing expenses incurred to attract new advertisers;

the impact of our recent substantial increase in headcount to meet expected increases in revenue for 2010;

fluctuations in our average ad rates (i.e., the amount of advertising sold at higher rates rather than lower rates);

fluctuations in the cost of online advertising and in the cost and/or amount of data available for behavioral targeting campaigns;

seasonal patterns in Internet advertisers’ spending;

worsening economic conditions which cause advertisers to reduce Internet spending and consumers to reduce their purchases;
     
 
increases in our investment in new technology;

changes in the regulatory environment, including regulation of advertising or the Internet, that may negatively impact our marketing practices;

the timing and amount of expenses associated with litigation, regulatory investigations or restructuring activities, including settlement costs and regulatory penalties assessed related to government enforcement actions;
 
any changes we make in our Critical Accounting Estimates described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report;
     
 
 
the valuation of available-for-sale securities may deteriorate further;
 
the adoption of new accounting pronouncements, or new interpretations of existing accounting pronouncements, that impact the manner in which we account for, measure or disclose our results of operations, financial position or other financial measures; and

costs related to acquisitions of technologies or businesses.

Expenditures by advertisers also tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns.  Any decline in the economic prospects of advertisers or the economy generally may alter advertisers’ current or prospective spending priorities, or may increase the time it takes us to close sales with advertisers, and could materially and adversely affect our business, results of operations and financial condition.

 
14

 

If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.

Our future depends, in part, on our ability to attract and retain key personnel and the continued contributions of our executive officers, each of whom may be difficult to replace. In particular, Michael Mathews, Chief Executive Officer, Michael Katz, President, Andrew Katz, Chief Technology Officer, Roger Clark, Chief Financial Officer, Jason Lynn, Chief Strategy Officer, and Dave Myers, Executive Vice President of Operations are important to the management of our business and operations and the development of our strategic direction.  The loss of the services of Messrs. Mathews, Michael Katz, Andrew Katz, Clark, Lynn and Myers and the process to replace any key personnel would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives.

Our two largest shareholders may be able to exert significant control over our business and affairs and may have actual or potential interests that may depart from those of our other shareholders.

Our Co-Chairmen of the Board own a substantial number of shares of our common stock.  The interests of such persons may differ from the interests of other shareholders.  As a result, in addition to their positions with us, such persons may be able to have significant influence over all corporate actions requiring shareholder approval, irrespective of how our other shareholders may vote, including their ability to:

elect or defeat the election of our directors;

amend or prevent amendment of our certificate of incorporation or bylaws;

effect or prevent a merger, sale of assets or other corporate transaction; and

control the outcome of any other matter submitted to the shareholders for vote.

Their power to control the designation of directors gives them the ability to exert influence over day-to-day operations. In addition, such persons’ stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our shareholders from realizing a premium over our stock price.
 
Because government regulation of the Internet may subject us to additional operating restrictions and regulations, our business and operating results may be adversely affected.
 
Companies engaging in online search, commerce and related businesses face uncertainty related to future government regulation of the Internet.  Due to the rapid growth and widespread use of the Internet, federal and state governments are enacting and considering various laws and regulations relating to the Internet.  Furthermore, the application of existing laws and regulations to Internet companies remains somewhat unclear.  Our business and operating results may be negatively affected by new laws, and such existing or new regulations may expose us to substantial compliance costs and liabilities and may impede the growth in use of the Internet.  Additionally, our third party data partners may be adversely affected by any new or existing laws. 
 
The application of these statutes and others to the Internet search industry is not entirely settled.  Further, several existing and proposed federal laws could have an impact on our business and our third party data partners’ business:
 
•             The Digital Millennium Copyright Act and its related safe harbors, are intended to reduce the liability of online service providers for listing or linking to third-party websites that include materials that infringe copyrights or other rights of others.
 
•             The CAN-SPAM Act of 2003 and certain state laws are intended to regulate interstate commerce by imposing limitations and penalties on the transmission of unsolicited commercial electronic mail via the Internet.
 
•             There have been several bills introduced in the Congress in recent years relating to protecting privacy.  As with any change in Presidential administration, especially to one more likely to protect privacy, new legislation in this area may be enacted.
 
•             Adopted and pending consumer protection and privacy legislation, including the FTC Online Behavioral Advertising Principles referred to in a prior risk factor.
 
With respect to the subject matter of each of these laws, courts may apply these laws in unintended and unexpected ways.  As a company that provides services over the Internet, we may be subject to an action brought under any of these or future laws governing online services.  We may also be subject to costs and liabilities with respect to privacy issues.  Several Internet companies have incurred costs and paid penalties for violating their privacy policies.  Further, it is anticipated that new legislation may be adopted by federal and state governments with respect to user privacy.  Additionally, foreign governments may pass laws which could negatively impact our business or may prosecute us for our products and services based upon existing laws.  The restrictions imposed by and cost of complying with, current and possible future laws and regulations related to our business could harm our business and operating results.  Further, any such laws that affect our third party data partners could indirectly harm our business and operating results.

 
15

 

If we are subject to legal claims, and/or government enforcement actions and held liable for our or our customers’ failure to comply with federal, state and foreign laws, regulations or policies governing consumer privacy, it could materially harm our business and damage our reputation.  

Recent growing public concern regarding privacy and the collection, distribution and use of information about Internet users has led to increased federal, state and foreign scrutiny and legislative and regulatory activity concerning data collection and use practices.  The United States Congress currently has pending legislation regarding privacy and data security measures (e.g., S. 495, the “Personal Data Privacy and Security Act of 2007”).  Any failure by us to comply with applicable federal, state and foreign laws and the requirements of regulatory authorities may result in, among other things, indemnification liability to our customers and the advertising agencies we work with, administrative enforcement actions and fines, class action lawsuits, cease and desist orders, and civil and criminal liability.  Recently, class action lawsuits have been filed alleging violations of privacy laws by Internet service providers.  The European Union's directive addressing data privacy limits our ability to collect and use information regarding Internet users.  These restrictions may limit our ability to target advertising in most European countries.  Our failure to comply with these or other federal, state or foreign laws could result in liability and materially harm our business.

In addition to government activity, privacy advocacy groups and the technology and direct marketing industries are considering various new, additional or different self-regulatory standards.  This focus, and any legislation, regulations or standards promulgated, may impact us adversely.  Governments, trade associations and industry self-regulatory groups may enact more burdensome laws, regulations and guidelines, including consumer privacy laws, affecting our customers and us.  Since many of the proposed laws or regulations are just being developed, and a consensus on privacy and data usage has not been reached, we cannot yet determine the impact these proposed laws or regulations may have on our business.  However, if the gathering of profiling information were to be curtailed, Internet advertising would be less effective, which would reduce demand for Internet advertising and harm our business.

Third parties may bring class action lawsuits against us relating to online privacy and data collection.  We disclose our information collection and dissemination policies, and we may be subject to claims if we act or are perceived to act inconsistently with these published policies.  Any claims or inquiries could be costly and divert management's attention, and the outcome of such claims could harm our reputation and our business.

Our customers are also subject to various federal and state laws concerning the collection and use of information regarding individuals.  These laws include the Children's Online Privacy Protection Act, the federal Drivers Privacy Protection Act of 1994, the privacy provisions of the Gramm-Leach-Bliley Act, the federal CAN-SPAM Act of 2003, as well as other laws that govern the collection and use of consumer credit information.  We cannot assure you that our customers are currently in compliance, or will remain in compliance, with these laws and their own privacy policies.  We may be held liable if our customers use our technologies in a manner that is not in compliance with these laws or their own stated privacy policies.

If we are not able to protect our intellectual property from unauthorized use, it could diminish the value of our products and services, weaken our competitive position and reduce our revenues.

Our success depends in large part on our proprietary demographic, behavioral, contextual, geographic and retargeting technologies.  In addition, we believe that our trademarks are key to identifying and differentiating our products and services from those of our competitors.  We may be required to spend significant resources to monitor and police our intellectual property rights.  If we fail to successfully enforce our intellectual property rights, the value of our products and services could be diminished and our competitive position may suffer.

We rely on a combination of copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights.  Third-party software providers could copy or otherwise obtain and use our technologies without authorization or develop similar technologies independently, which may infringe upon our proprietary rights.  We may not be able to detect infringement and may lose competitive position in the market before we do so.  In addition, competitors may design around our technologies or develop competing technologies.  Intellectual property protection may also be unavailable or limited in some foreign countries.

We generally enter into confidentiality or license agreements with our employees, consultants, vendors, customers, and corporate partners, and generally control access to and distribution of our technologies, documentation and other proprietary information.  Despite these efforts, unauthorized parties may attempt to disclose, obtain or use our products and services or technologies.  Our precautions may not prevent misappropriation of our products, services or technologies, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States.

 
16

 

If we become involved in lawsuits relating to our intellectual property rights, it could be expensive and time consuming, and an adverse result could result in significant damages and/or force us to make changes to our business.

We rely on trade secrets to protect our intellectual property rights. If we are sued by a third party which alleges we are violating its intellectual property rights or if we sue a third party for violating our rights, intellectual property litigation is very expensive and can divert our limited resources.  We may not prevail in any litigation.  An adverse determination of any litigation brought by us could materially and adversely affect our future results of operations by either reducing future revenues or increasing future costs.  Additionally, an adverse award of money damages could affect our financial condition.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.  In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation.  If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the trading price of our common stock.

If we are not able to respond to the rapid technological change characteristic of our industry, our services may not be competitive.

The market for our services is characterized by rapid change in business models and technological infrastructure, and we will need to constantly adapt to changing markets and technologies to provide competitive services.  We believe that our future success will depend, in part, upon our ability to develop our services for both our target market and for applications in new markets.  We may not, however, be able to successfully do so, and our competitors may develop innovations that render our services uncompetitive.

If our computer systems fail to operate effectively in the future, we may incur significant costs to remedy these failures and may sustain reduced revenues.

Our success depends on the continuing and uninterrupted performance of our computer systems. Sustained or repeated system failures that interrupt our ability to provide services to customers, including failures affecting our ability to deliver advertisements quickly and accurately and to process visitors’ responses to advertisements, would reduce significantly the attractiveness of our solutions to advertisers and publishers.  Our business, results of operations and financial condition could also be materially and adversely affected by any systems damage or failure that impacts data integrity or interrupts or delays our operations.  Our computer systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages and malicious or accidental human acts.  Any of the above factors could substantially harm our business resulting in increased costs.  Moreover, despite network security measures, our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems in part because we cannot control the maintenance and operation of our third-party data centers.  Any of these occurrences could cause material interruptions or delays in our business, result in the loss of data, render us unable to provide services to our customers, and expose us to material risk of loss or litigation and liability.  If we fail to address these issues in a timely manner, it may materially damage our reputation and business causing our revenues to decline.
 
Computer viruses could damage our business.

Computer viruses, worms and similar programs may cause our systems to incur delays or other service interruptions and could damage our reputation and ability to provide our services and expose us to legal liability, all of which could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.

Because our third-party servers are located in South Florida, in the event of a hurricane our operations could be adversely affected.

We rely upon servers owned by third parties which are located in South Florida where our technology offices are located.  Because South Florida is in a hurricane-sensitive area, we are susceptible to the risk of damage to our servers.  This damage can interrupt our ability to provide services.  If damage caused to our servers were to cause them to be inoperable for any amount of time, we would be forced to switch hosting facilities which could be more costly.  We are not insured against any losses or expenses that arise from a disruption or any short-term outages to our business due to hurricanes or tropical storms.

Since we rely on third-party co-location providers, a failure of service by these providers could adversely affect our business and reputation.

We rely upon third party co-location providers to host our main servers.  In the event that these providers experience any interruption in operations or cease operations for any reason or if we are unable to agree on satisfactory terms for continued hosting relationships, we would be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves.  If we are forced to switch hosting facilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves.  We may also be limited in our remedies against these providers in the event of a failure of service. In the past, short-term outages have occurred in the service maintained by co-location providers which could recur.  We added a fully-redundant co-location facility in the Washington D.C. area in the first quarter of 2010 to mitigate the single point of failure risk. We also rely on third-party providers for components of our technology platform.  A failure or limitation of service or available capacity by any of these third-party providers could adversely affect our business and reputation.

 
17

 

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. Any inability to provide reliable financial reports or to prevent fraud could harm our business.  The Sarbanes-Oxley Act of 2002 requires management to evaluate and assess the effectiveness of our internal control over financial reporting.  We determined that our internal control over financial reporting was effective as of December 31, 2009.  In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and, where appropriate, enhance our policies, procedures and internal controls.  If we fail to maintain the adequacy of our internal controls, we could be subject to litigation or regulatory scrutiny and investors could lose confidence in the accuracy and completeness of our financial reports.  We cannot assure you that in the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our internal control over financial reporting is effective.  If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our business may be harmed and our stock price may decline.

Risks Relating to our Common Stock

Due to factors beyond our control, our stock price may be volatile.

Any of the following factors could affect the market price of our common stock:

·
Actual or anticipated variations in our quarterly results of operations;
·
Our failure to meet financial analysts’ performance expectations;
·
Our failure to meet or exceed our own publicly-disclosed forecasts;
·
Our failure to achieve and maintain profitability;
·
Short selling activities;
·
The loss of major advertisers, publishers or data providers;
·
Announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments;
·
The departure of key personnel;
·
Regulatory developments;
·
Changes in market valuations of similar companies; or
·
The sale of a large amount of common stock by shareholders owning large positions.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted.  A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.

Because the majority of our outstanding shares are freely tradable, sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.

As of March 29, 2010, we had outstanding 23,694,272 shares of common stock of which our directors and executive officers own approximately 4.4 million shares which are subject to the limitations of Rule 144 under the Securities Act.  Almost all of the remaining outstanding shares are freely tradable.  The restricted shares, not held by our directors or executive officers, will be eligible for sale under Rule 144 on various dates beginning in April 2010 through September 2010.

In general, Rule 144 provides that any non-affiliate of ours, who has held restricted common stock for at least six-months, is entitled to sell their restricted stock freely, provided that we stay current in our filings with the SEC.

An affiliate of interCLICK may sell restricted stock after six months or unrestricted stock with no holding period with the following limitations:

(i)
we are current in our SEC filings,
(ii)
certain manner of sale provisions,
(iii)
filing of Form 144, and
(iv)
volume limitations limiting the sale of shares within any three-month period to a number of shares that does not exceed the greater of 1% of the total number of outstanding shares or, the average weekly trading volume during the four calendar weeks preceding the filing of a notice of sale.

Because the majority of our outstanding shares are freely tradable and the shares held by our affiliates may be freely sold (subject to the Rule 144 limitations), sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.

 
18

 

Delaware law contains anti-takeover provisions that could deter takeover attempts that could be beneficial to our stockholders.  

Provisions of Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of the Company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring the Company, without our board of directors' consent, for at least three years from the date they first hold 15% or more of the voting stock.
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.
 
Item 8.
Financial Statements and Supplementary Data.
 
See pages F-1 through F-35.

Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
 
Not applicable.
 
Item 9A.
Controls and Procedures.
 
Not applicable.
 
Item 9A(T).
Controls and Procedures.
 
Disclosure Controls

We carried out an evaluation required by Rule 13a-15 under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”).
  
Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in an issuer's reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

The evaluation of our disclosure controls and procedures included a review of our objectives and processes and effect on the information generated for use in this report.  This type of evaluation is done quarterly so that the conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC.  We intend to maintain these controls as processes that may be appropriately modified as circumstances warrant.

Based on their evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information which is required to be included in our periodic reports filed with the SEC as of the end of the period covering this report.

Management’s Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009 based on the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria set forth in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

However, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Management necessarily applied its judgment in assessing the benefits of controls relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and may not be detected.

 
19

 

This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we engaged our independent registered public accounting firm to perform, an audit on our internal control over financial reporting pursuant to the rules of the SEC that permit us to provide only management’s report in this report.

Changes in Internal Control Over Financial Reporting

In the fourth quarter of 2009, the Company strengthened its internal control and review procedures with respect to accounting for stock compensation, including subsequently entering into an agreement with a third-party equity administration software provider.  There were otherwise no significant changes in our internal control over financial reporting during the fourth quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.
Other Information.

None.
 
PART III

Item 10.
Directors, Executive Officers and Corporate Governance.

The following is a list of our executive officers and directors. All directors serve one-year terms or until each of their successors are duly qualified and elected. The officers are elected by the Board of Directors.

Name
 
Age
 
Position
Michael Mathews
 
48
 
Chief Executive Officer and Director
Michael Katz
 
31
 
President and Director
Roger Clark
 
41
 
Chief Financial Officer
Andrew Katz
 
29
 
Chief Technology Officer
Jason Lynn
 
37
 
Chief Strategy Officer
Dave Myers
 
40
 
Executive Vice President, Operations
Michael Brauser
 
54
 
Co-Chairman
Barry Honig
 
38
 
Co-Chairman
Brett Cravatt
 
36
 
Director

Director Biographies

Michael Brauser has served as Co-Chairman since August 28, 2007.  Mr. Brauser served as Chairman of the Board of Directors of SendTec, Inc. from October 2005 through November 2006.  Mr. Brauser has been the manager of Marlin Capital Partners, LLC, a private investment company, since 2003.  He is a private investor.  From 1999 through 2002, he served as President and Chief Executive Officer of Naviant, Inc. (eDirect, Inc.), an Internet marketing company.  He also was the founder of Seisant Inc. (eData.com, Inc.).  Mr. Brauser was selected as a director due to his significant experience in the Internet industry as well as his extensive business and management expertise from his background as an executive officer of a number of public companies.  Mr. Brauser has extensive knowledge of Internet marketing companies, accounting and finance expertise.  He also is a large shareholder.

Barry Honig has served as Co-Chairman since August 28, 2007. Since January 2004, Mr. Honig has been the President of GRQ Consultants, Inc. 401(k), an investor and consultant to early stage companies. He is a private investor.  Mr. Honig was selected to serve as a director on our Board due to his success as an investor, extensive knowledge of the capital markets, his judgment in assessing business strategies taking into account any accompanying risks, and his knowledge of the marketing industry. He is also a large shareholder.

Brett Cravatt has served as a director since June 5, 2009. Since 2006, Mr. Cravatt has been the Chief Executive Officer and founder of WebYes! LLC. WebYES! finds new customers every day online for clients in select verticals by designing, creating and marketing web properties tailored to specific consumer products and services. Prior to WebYES!, Mr. Cravatt served as the Chief Operating Officer of Vendare Media (now Connexus). Mr. Cravatt joined Vendare Media in March 2001 via the acquisition of SportSkill.com, a fantasy sports software company co-founded by Mr. Cravatt. Prior to SportSkill.com, Mr. Cravatt was a corporate securities attorney for Loeb & Loeb, LLP, where he handled various corporate matters for start-up companies and Fortune 1000 clients. Mr. Cravatt holds a Bachelor's degree in Political Science from U. C. Berkeley and a J. D. from Stanford Law School.  Mr. Cravatt was selected to serve as a director on our Board due to his valuable financial and legal expertise and his extensive experience with Internet marketing companies.

 
20

 

Michael Katz has served as our President and a director since August 31, 2007. From 2003 until we acquired Desktop on August 31, 2007, Mr. Katz was the founder, Chief Executive Officer, and President of Desktop. Mr. Katz graduated from Syracuse University with a degree in Finance and Economics.  Mr. Katz was selected to serve as a director on our Board due to his depth of knowledge of interCLICK, including its operations, his extensive knowledge of the Internet marketing industry and his position as President of interCLICK.

Michael Mathews has served as our Chief Executive Officer and a director since August 28, 2007. Mr. Mathews is one of the founders of Customer Acquisition and served as its Chief Executive Officer, President and a director since its inception in June 2007. From May 15, 2008 until June 30, 2008, Mr. Mathews served as our interim Chief Financial Officer until David Garrity was appointed (Mr. Garrity was later succeeded as CFO by Roger Clark). From 2004 to 2007, Mr. Mathews served as the senior vice-president of marketing and publisher services for World Avenue U.S.A., LLC, an Internet promotional marketing company. Mr. Mathews graduated from San Francisco State University with a degree in Marketing and holds a Masters in Business Administration from Golden Gate University. Mr. Mathews was selected to serve as a director on our Board due to his depth of knowledge of interCLICK, including its operations, its strategies, his extensive knowledge of the Internet marketing industry and his position as Chief Executive Officer of interCLICK.

Executive Officer Biographies

See Michael Mathews’ biography above.

See Michael Katz’s biography above.

Roger Clark has served as our Chief Financial Officer since August 7, 2009.  From 1994 until August 2009, Mr. Clark was an executive with IAC/InterActiveCorp. which operated more than 50 Internet businesses worldwide. From 2006 until 2009, Mr. Clark was Vice President, Finance at IAC Advertising Solutions and in 2009 served in the Office of the Chief Financial Officer at IAC Search & Media. From 2002 to 2006, Mr. Clark was the Vice President, Investor Relations and Finance at IAC/InterActiveCorp. Mr. Clark was an auditor with Ernst & Young, LLP from 1991 until 1994, and became a Certified Public Accountant in 1994; his current status is not practicing.

Andrew Katz has served as our Chief Technology Officer since August 31, 2007. From 2004 until we acquired Desktop on August 31, 2007, Mr. Katz was the Chief Technology Officer of Desktop. From February 2004 until July 1, 2008, Mr. Katz also served as the Chief Executive Officer of mStyle, LLC. Prior to mStyle, he served as the Senior Software Engineer for Jenzabar, Inc. Mr. Katz is the brother of Michael Katz, our President.

Jason Lynn has served as our Chief Strategy Officer since March 2010 and previously was our Vice President of Product Development from June 2008 until March 2010. From July 2007 through July 2008, Mr. Lynn was the Director of Solutions Engineering at Right Media, LLC, a wholly-owned subsidiary of Yahoo! Inc. From August 2006 through July 2007, Mr. Lynn was the Product Manager at TACODA Systems, Inc., a provider of behavioral targeting solutions to web publishers. From June 2004 until July 2006, he was self-employed as an IT Systems Consultant.   Previously, he spent seven years in the Internet technology space in positions with Intel, UUnet, and Navisite.

Dave Myers has served as our Executive Vice President, Operations since March 2010 and previously was our Vice President of Operations from April 2009 until March 2010. From 2006 until joining interCLICK, Mr. Myers worked for Yahoo! Inc. and Right Media (which was acquired by Yahoo! Inc. in July 2007) as a Senior Director of Advertiser Marketplaces Operations and Senior Director of Right Media Client Services, respectively. From 2004 to 2006, Mr. Myers was an Enterprise Services Engagement Manager at Microsoft Corporation.

Corporate Governance

Board Responsibilities and Structure
 
The Board oversees, counsels, and directs management in the long-term interest of interCLICK and its shareholders. The Board’s responsibilities include:
 
·
Establishing broad corporate policies and
 
·
Reviewing the overall performance of interCLICK.
 
The Board is not, however, involved in the operating details on a day-to-day basis.

 
21

 

Board Committees and Charters

The Board and its Committees meet throughout the year and act by written consent from time to time as appropriate. The Board has formed Audit, Compensation and Nominating Committees. Committees regularly report on their activities and actions to the Board. The Board appoints members to its: Audit Committee, Compensation Committee and Nominating Committee. The Audit Committee and the Nominating Committee each have a written charter approved by the Board.

The following table identifies the independent and non-independent current Board and Committee members:

Name
 
Independent
   
Audit
   
Compensation
   
Nominating
 
                         
Michael Brauser
   
P
     
P
     
P
     
P
 
Barry Honig
   
P
     
P
     
P
     
P
 
Brett Cravatt
   
P
     
P
     
P
     
P
 
Michael Katz
                               
Michael Mathews
                               

Our Board has determined that Messrs. Cravatt, Brauser and Honig are independent under the NASDAQ Stock Market Listing Rules.

Audit Committee
 
The Audit Committee’s primary role is to review our accounting policies and any issues which may arise in the course of the audit of our financial statements. The Audit Committee selects our independent registered public accounting firm, approves all audit and non-audit services, and reviews the independence of our independent registered public accounting firm. The Audit Committee also reviews the audit and non-audit fees of the auditors. Our Audit Committee is also responsible for certain corporate governance and legal compliance matters including internal and disclosure controls and Sarbanes-Oxley compliance. The members of the Audit Committee are Brett Cravatt, Michael Brauser and Barry Honig. Our Board has determined that Messrs. Cravatt and Brauser are each qualified as an Audit Committee Financial Expert, as that term is defined by the rules of the SEC and in compliance with the Sarbanes-Oxley Act of 2002. The Board has determined that Messrs. Cravatt, Brauser and Honig are independent in accordance with the NASDAQ Stock Market independence standards for audit committees.

Compensation Committee

The function of the Compensation Committee is to review and recommend the compensation of benefits payable to our officers, review general policies relating to employee compensation and benefits and administer our various stock option plans. The members of the Compensation Committee are Messrs. Cravatt, Brauser and Honig.

Nominating Committee

The purpose and responsibilities of the Nominating Committee include the identification of individuals qualified to become Board members, the selection or recommendation to the Board of nominees to stand for election as directors, the oversight of the evaluations of the Board and management, and review with the Board from time to time the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board, including issues of diversity, age, skills such as understanding of technology, finance and marketing. The members of the Nominating Committee are Messrs. Cravatt, Brauser and Honig.
 
Code of Ethics
 
Our Board of Directors has adopted a Code of Ethics that applies to all of our employees, including our Chief Executive Officer and Chief Financial Officer. Although not required, the Code of Ethics also applies to our directors. The Code of Ethics provides written standards that we believe are reasonably designed to deter wrongdoing and promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, full, fair, accurate, timely and understandable disclosure and compliance with laws, rules and regulations, including insider trading, corporate opportunities and whistle-blowing or the prompt reporting of illegal or unethical behavior. A request for a copy, free of charge, can be made in writing to interCLICK, Inc. 257 Park Avenue South, Suite 602, New York, NY 10010 Attention: Mr. Michael Mathews.

Board Diversity

While we do not have a formal policy on diversity, our Board considers diversity to include the skill set, background, reputation, type and length of business experience of our Board members as well as a particular nominee’s contributions to that mix.  Although there are many other factors, the Board seeks individuals with experience on public company boards as well as experience with Internet marketing, legal and accounting skills.

 
22

 
 
Board Assessment of Risk

Our risk management function is overseen by our Board.  Through our policies, our Code of Ethics and our Board committees’ review of financial and other risks, our management keeps our Board apprised of material risks and provides our directors access to all information necessary for them to understand and evaluate how these risks interrelate, how they affect interCLICK, and how management addresses those risks.  Mr. Mathews, a director and Chief Executive Officer, and Mr. Clark, our Chief Financial Officer, work closely together with the Board once material risks are identified on how to best address such risk.  If the identified risk poses an actual or potential conflict with management, our independent directors may conduct the assessment. Presently, the primary risks affecting interCLICK include our ability to continue increasing market share in an intensely competitive online advertising market, successfully execute  our business strategy and deploy a differentiated technology solution, and effectively raise sufficient capital as we scale our business. The Board focuses on these key risks and interfaces with management on seeking solutions.

Board Structure
 
Since we acquired Desktop in August 2007, our Board has separated the positions of Chairman of the Board and Chief Executive Officer.  Since that time, Messrs. Michael Brauser and Barry Honig have acted as our Co-Chairmen and Mr. Michael Mathews has acted as our Chief Executive Officer.  Separating these positions allows Mr. Mathews to focus on our day-to-day business while allowing the Co-Chairmen of the Board to lead the Board in its fundamental role of providing advice to management and acting as an independent oversight of management.  Because of our rapid growth, we believe that this leadership structure is appropriate for us. While our Bylaws and corporate governance guidelines do not require that our Chairman and Chief Executive Officer positions be separate, the Board believes having these separate positions and having two independent outside directors serve as Co-Chairmen is the appropriate leadership structure for interCLICK at this time and demonstrates our commitment to good corporate governance.

Shareholder Communications
 
Although we do not have a formal policy regarding communications with the Board of Directors, shareholders may communicate with the Board by writing to us interCLICK, Inc., 257 Park Avenue South, Suite 602, New York, NY 10010 Attention: Mr. Michael Mathews, or by facsimile (646) 558-1225. Shareholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership of our common stock with the SEC.  Based on the information available to us during 2009, we believe that all applicable Section 16(a) filing requirements were met on a timely basis.

Item 11.          Executive Compensation.

The following information is related to the compensation paid, distributed or accrued by us for 2009 and 2008 to our Chief Executive Officer (principal executive officer) and the two other most highly compensated executive officers serving at the end of the last fiscal year whose compensation exceeded $100,000 (the “Named Executive Officers”).

2009 Summary Compensation Table

                               
Non-Equity
       
Name and
                 
Stock
   
Option
   
Incentive Plan
       
Principal Position
 
Year
 
Salary
   
Bonus
   
Awards
   
Awards
   
Compensation
   
Total
 
(a)
 
(b)
 
($)(c)
   
($)(d)
   
($)(e)(1)
   
($)(f)(1)
   
($)(g)(2)
   
($)(j)
 
Michael Mathews
 
2009
    347,618       -    
-
      124,000       177,500       649,118  
Chief Executive Officer
 
2008
    325,000       -    
-
     
-
      70,000       395,000  
Michael Katz
 
2009
    295,833       60,000    
-
      763,000       90,000       1,208,833  
President
 
2008
    250,000       -    
-
     
-
      112,615       362,615  
Andrew Katz (3)
 
2009
    243,750       -       56,250       545,000       123,750       968,750  
Chief Technology Officer (4)
 
2008
    181,875       -      
-
      354,000       56,250       592,125  
Roger Clark (5)
 
2009
    89,732       66,575       37,400       785,000       45,925       1,024,632  
Chief Financial Officer
                                                   

23

 
(1)   
The amounts in these columns represent the fair value of the award as of the grant date as computed in accordance with FASB ASC Topic 718 and the recently revised SEC disclosure rules. These rules also require prior year amounts to be recalculated in accordance with the rule (and therefore any number previously disclosed in our 2008 Form 10-K regarding our Named Executive Officers compensation on this table or any other table may not reconcile.)  These amounts represent awards that are paid in shares of common stock or options to purchase shares of our common stock and do not reflect the actual amounts that may be realized by the Named Executive Officers. 
(2)   
Represents a cash bonus based on the satisfaction of a performance target of which the outcome was substantially uncertain to occur at the time it was established. Under SEC rules, when a cash bonus is substantially uncertain, the bonus is disclosed in this column.
(3)   
Includes 28,125 shares of restricted common stock which vesting terms were modified to provide for vesting each calendar quarter from semi-annually.
(4)   
Includes 100,000 options re-priced from $5.90 to $2.62 per share in 2008.
(5)   
Mr. Roger Clark has been our Chief Financial Officer since August 7, 2009.  Although he is not a Named Executive Officer as defined by SEC regulations, interCLICK is voluntarily disclosing Mr. Clark’s compensation.

Named Executive Officer Compensation
 
Michael Mathews. Effective on June 28, 2007, we entered into an employment agreement with Michael Mathews, to serve as our Chief Executive Officer. In accordance with the employment agreement, Mr. Matthews was paid a base salary of: (i) $325,000 in his first year of employment, (ii) $340,000 in his second year of employment, and (iii) currently receives $355,000 in his third year of employment, and will receive an agreed upon salary for all future years of employment. In addition to a base salary, Mr. Mathews is eligible to receive an annual performance bonus based upon the achievement of pre-established performance milestones tied to our revenues and earnings of which at least half would be paid in cash and the remaining in interCLICK stock. If performance milestones are met, Mr. Mathews’ bonus will be 50% of his base salary for the year the milestone was met.  For 2009, Mr. Mathews received a $177,500 bonus, of which $149,167 was paid in February 2010.  Additionally, we agreed in 2007 to (i) pay his former employer $100,000, (ii) pay a $50,000 relocation fee and (iii) guarantee a $50,000 minimum bonus payment. Also in 2007, Mr. Mathews received 700,000 shares of vested founders stock and was granted 725,000 stock options vesting in quarterly increments over three years exercisable at $2.00 per share.  In February 2009, Mr. Mathews received 100,000 fully-vested stock options, exercisable at $1.52 per share.

Michael Katz. On August 31, 2007, we entered into an employment agreement with Michael Katz, to serve as our President. Under the agreement, Mr. Katz was to receive an annual base salary of $250,000. In February 2009, Mr. Katz’s base salary was increased to $300,000.  Under his agreement, he also received a $75,000 signing bonus and a bonus based on pre-established performance milestones half payable in stock and half in cash. If the performance milestone is met, it shall equal 30% of his base salary for that year.  In March 2010, the Board approved an amendment to his agreement increasing the target bonus to 50%.  In the event that the Board and Mr. Katz are unable to agree on a mutually acceptable performance milestone, Mr. Katz will receive a guaranteed annual bonus for such fiscal year of not less than 15% of his base salary. In his sole discretion, Mr. Katz may elect to receive such annual bonus in capital stock at the basis determined by our Board.  For 2009, Mr. Katz received a $150,000 bonus, of which $90,000 was paid in March 2010.  Additionally on August 31, 2007, Mr. Katz was granted 150,000 stock options vesting annually on each over a four year period exercisable at $2.00 per share which are now fully vested. On June 5, 2009, Mr. Katz was granted 350,000 stock options vesting quarterly over four years beginning June 30, 2009, exercisable at $2.60 per share.

Andrew Katz. Effective March 3, 2008, we entered into an employment agreement with Mr. Andrew Katz, our Chief Technology Officer. The current term of his agreement expires on March 3, 2011 but will be automatically renewed for additional one-year periods until either we or Mr. Katz gives the other party written notice of its intent not to renew at least 60 days prior to the end of the then current term. Mr. Katz was paid a base salary of $225,000 in his first year of employment, currently receives $247,500 and will continue to receive a 10% increase on each one-year anniversary of entering into the agreement. Under his agreement, he is entitled to receive a bonus based on pre-established performance milestones of which at least half would be payable in cash and the remainder in interCLICK stock. If the performance milestone is met, it shall equal 50% of his base salary for that year. For 2008, Mr. Katz received a cash bonus of $56,250 paid in 2009 and 28,125 shares of restricted stock to vest semi-annually over four years.  On October 14, 2009, we agreed to modify the vesting of these shares from vesting semi-annually to vesting each calendar quarter.  For 2009, Mr. Katz received a $123,750 bonus which was paid in February 2010. Mr. Katz was granted 50,000 stock options exercisable at $2.00 per share vesting annually over four years beginning September 21, 2008.  In 2008, Mr. Katz was granted 100,000 stock options exercisable at $5.90 per share vesting annually over four years beginning March 3, 2009. On September 24, 2008, these options were repriced at $2.62 per share. On June 5, 2009, Mr. Katz was granted 250,000 stock options vesting quarterly over four years beginning June 30, 2009, exercisable at $2.60 per share.
  
Roger Clark. Effective August 7, 2009, we entered into a three-year employment agreement with Roger Clark, to serve as our Chief Financial Officer.  Mr. Clark receives a $225,000 base salary in his first year of employment and will receive at least a 10% increase each year thereafter. In addition to a base salary, Mr. Clark is eligible to receive an annual bonus based upon the achievement of pre-established annual individual and interCLICK performance goals. If the performance goals are met, Mr. Clark’s bonus will be equal to 50% of his base salary for the year the milestone is met and may be paid in any combination of cash and interCLICK stock that Mr. Clark determines.  For 2009, Mr. Clark received a $112,500 bonus, of which $25,000 was paid in September 2009, and $81,500 was paid in March 2010.  Mr. Clark also received 10,000 shares of common stock which vested six months after commencing employment.  Mr. Clark was granted 250,000 stock options vesting in quarterly increments over three years beginning September 30, 2009, exercisable at $3.20 per share.
 
24

 
Termination Provisions

The table below describes the severance payments that our executive officers are entitled to in connection with a termination of their employment upon death, disability, without cause, for Good Reason, change of control and the non-renewal of their employment at the discretion of interCLICK.  All of the termination provisions are intended to comply with Section 409A of the Internal Revenue Code of 1986 and the Regulations thereunder.

  
  
Michael Mathews
  
Roger Clark
  
Michael Katz
  
Andrew Katz
  
  
  
  
  
  
  
  
  
Death
  
None
  
None
  
12 months base salary
  
None
Total Disability
  
None
  
None
  
12 months base salary
  
None
Dismissal Without Cause
 
18 months base salary and 1,350,000 stock options immediately vest
 
The greater of 12 months base salary or the remainder of the base salary due under the employment agreement and all stock options or shares of restricted stock immediately vest
 
The greater of 12 months base salary or the reminder of the base salary due under the employment agreement
 
Six months base salary
Resignation for Good
Reason (1)
 
18 months base salary and 1,350,000 stock options immediately vest
 
12 months base salary and all stock options or shares of restricted stock scheduled to vest within one year immediately vest
 
The greater of 12 months base salary or the remainder of the base salary due under the employment agreement
 
Six months base salary
Change of Control
 
All stock options and restricted stock immediately vest
 
All stock options and restricted stock immediately vest
 
All stock options and restricted stock immediately vest
 
None
Expiration of Initial Term and interCLICK does not renew
  
None
  
None
  
The greater of 12 months base salary or the remainder of the base salary due under the employment agreement
  
None
 

(1)
Generally, Good Reason in the above agreements include the material diminution of the executives’ duties, any material reduction in base salary without consent, the relocation of the geographical location where the executive performs services or any other action that constitutes a material breach by interCLICK under the employment agreements.

Mr. David Garrity, who served as our Chief Financial Officer from June 30, 2008 until August 7, 2009, was receiving a base salary of $235,000 when he resigned. His employment agreement provided for six months of base salary and benefits in the event that he was terminated without cause (which he was). In order to ensure his continued availability during the transition period, we entered into a six month consulting agreement with Mr. Garrity which paid him the full amount of his severance and his stock options continued to vest while he served as a consultant.
 
25


Outstanding Equity Awards At 2009 Fiscal Year-End

Listed below is information with respect to unexercised options, stock that has not vested and equity incentive awards for each Named Executive Officer as of December 31, 2009:

   
OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR-END
 
   
OPTION AWARDS
 
STOCK AWARDS
 
Name 
(a)
 
Number of 
Securities
Underlying
Unexercised
Options 
(#) 
Exercisable 
(b)
   
Number of
Securities
Underlying
Unexercised
Options 
(#) 
Unexercisable
(c)
   
Option
Exercise
Price
($)
(e)
 
Option
Expiration
Date
(f)
 
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
(g)
   
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($) 
(h)
 
                                 
Michael Mathews
    543,750       181,250
(1)
    2.00  
8/28/12
           
       83,333       41,667
(2)
    2.00  
10/12/12
           
      100,000       0       1.52  
2/6/14
           
   
                                     
Michael Katz
     150,000       0       2.00  
8/31/12
           
      65,625       284,375
(3)
    2.60  
6/5/14
           
                                       
Andrew Katz  
     25,000       25,000
(4)
    2.00  
9/21/12
           
       33,333
(5)
    66,667
(5)
    2.62  
9/24/13
           
      46,875       203,125
(3)
    2.60  
6/5/14
           
                                21,094
(6)
    110,322
(6)
                                           
Roger Clark
    41,667       208,333
(7)
    3.20  
8/7/14
               
                                10,000
(8)
    52,300
(8)
 

 
(1)
These options vest quarterly over a three year period. The remaining options vest on February 28, 2010, May 28, 2010 and August 28, 2010.
(2) 
These options vest quarterly over a three year period. The remaining options vest on January 12, 2010, April 12, 2010, July 12, 2010 and October 12, 2010.
(3) 
These options vest quarterly over a four year period. The remaining options vest on March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010,  March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012, June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013.
(4) 
These options vest annually over a four year period.  The remaining options vest on September 21, 2010 and 2011.
(5) 
These options vest annually over a three year period.  During 2008, these options were repriced from $5.90 to $2.62.  The remaining options vest on September 24, 2010 and 2011.
(6) 
These shares vest quarterly over a four year period and the remaining vesting dates are March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010,  March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012, June 30, 2012, September 30, 2012 and December 31, 2012. The market value was calculated based on the product of the December 31, 2009 closing price of $5.23 and the number of shares remaining unvested at December 31, 2009.
(7) 
These options vest quarterly over a three year period and the remaining vesting dates are March 31, 2010, June 30, 2010, September 30, 2010, December 31, 2010,  March 31, 2011, June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012 and June 30, 2012.
(8) 
These shares vested on February 6, 2010.  The market value was calculated based on the product of the December 31, 2009 closing price of $5.23 and the number of shares remaining unvested at December 31, 2009.
 
26

 
Equity Compensation Plan Information

Our Board has adopted the 2007 Stock Incentive Plan (the “Equity Plan”) and the 2007 Incentive Stock and Award Plan (the “Incentive Plan) (collectively, the “Plans”).  The Equity Plan reserves 2,250,000 and the Incentive Plan provides for the grant of up to 3,112,500 stock options or shares of common stock to directors, officers, consultants, advisors or employees of interCLICK.  As of March 25, 2010, there were no shares available for grant under the Plans.

The following chart reflects the number of options granted and the weighted average exercise price under our compensation plans as of December 31, 2009.

   
Aggregate
         
Aggregate
 
   
Number of
   
Weighted
   
Number of
 
   
Securities
   
Average
   
Securities
 
   
Underlying
   
Exercise
   
Available
 
   
Options
   
Price Per
   
for
 
   
Granted
   
Share
   
Grant
 
Equity compensation plans approved by security holders(1) (2)(3)
    5,144,167     $ 2.69       340,208  
Equity compensation plans not approved by security holders
                       
Total
    5,144,167     $ 2.69       340,208  
 
(1)
Because they are identical, for purposes of this table, we have combined the Plans.
(2)
Includes two option grants granted outside of the Plans, including 150,000 5-year stock options to purchase common stock exercisable at $2.40 per share granted to a director.
(3)
On October 23, 2009, our shareholders ratified the adoption of our equity compensation plans.

2009 Director Compensation

In 2009, we did not pay cash compensation to our directors for service on our Board.  For 2010 service, our non-employee directors will receive $26,000 per year which will be paid in equal installments each calendar quarter.  Directors who are employed by interCLICK are not compensated for their service on the Board.  Therefore, this table does not include Michael Mathews and Michael Katz.  Non-employee members of our Board were compensated with stock options for 2009 service.

   
Option
 
Name
 
Awards
 
(a)
 
($)(1)
 
       
Michael Brauser (2)
  $ 322,000  
Brett Cravatt (3)
  $ 300,000  
David Garrity (4)
  $ 12,400  
Barry Honig (2)
  $ 322,000  
Sanford Rich (4)
  $ -  

(1)
The amounts in this column represent the fair value of the award as of the grant date as computed in accordance with FASB ASC Topic 718 and the recently revised SEC disclosure rules. These amounts represent awards that are paid in options to purchase shares of our common stock and do not reflect the actual amounts that may be realized by the directors.
(2)
Represents 100,000 5-year options to purchase common stock exercisable at $4.32 per share granted for service on the Board for 2009.  The options vest in equal annual increments over a four year period with the first vesting date being October 10, 2010.
(3)
Represents 150,000 5-year stock options to purchase common stock exercisable at $2.40 per share granted to Mr. Cravatt for his initial appointment to the Board.  The options vest quarterly over a four year period with the first vesting date being June 30, 2009.
(4)
Former director.
 
27

 
Item 12.          Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth the number of shares of our common stock beneficially owned as of March 26, 2010 by (i) those persons known by us to be owners of more than 5% of our common stock, (ii) each director (iii) our Named Executive Officers (as disclosed in the Summary Compensation Table), and (iv) our executive officers and directors as a group.

Title of Class
 
Name and
Address of Beneficial Owner
 
Amount of Beneficial
Ownership(1)
   
Percent
Beneficially
Owned(1)
 
                 
Directors and Executive Officers:
               
Common Stock
 
Michael Mathews
257 Park Avenue South Ste. 602
New York, NY 10010 (2)(3)(4)
    1,328,750       5.2 %
Common Stock
 
Michael Katz
257 Park Avenue South Ste. 602
New York, NY 10010 (2)(3)(5)
    997,500       4.2 %
Common Stock
 
Andrew Katz
    152,958       *  
   
4800 T-Rex Avenue Ste. 120
Boca Raton, FL 33431 (2)(6)
               
Common Stock
 
Roger Clark
    76,500       *  
   
257 Park Avenue South Ste. 602
               
   
New York, NY 10010 (2)(7)
               
Common Stock
 
Michael Brauser
595 S. Federal Hwy. Ste. 600
Boca Raton, FL 33432 (3)(8)
    1,856,500       7.8 %
Common Stock
 
Barry Honig
595 S. Federal Hwy. Ste. 600
Boca Raton, FL 33432 (3)(9)
    1,363,268       5.7 %
Common Stock
 
Brett Cravatt
324 32324 Bayview Drive
Hermosa Beach, CA 90254 (3)(10)
    37,500       *  
Common Stock
 
All directors and executive officers
as a group (9 persons)
    5,923,209       23.5 %
5% Shareholders:
                   
Common Stock
 
Gerald Unterman
610 Park Avenue Apt. 16A
New York, NY 10065 (11)
    2,128,250       8.9 %
Common Stock
 
Palo Alto Investors
    1,600,000       6.8 %
   
470 University Avenue
               
   
Palo Alto, CA 94301 (12)
               

* Less than 1%

(1)
Applicable percentages are based on 23,694,272 shares outstanding adjusted as required by rules of the SEC.  Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days whether upon the exercise of options or otherwise.  Shares of common stock subject to options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within 60 days after the date of this report are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Unless otherwise indicated in the footnotes to this table, interCLICK believes that each of the shareholders named in the table has sole voting and investment power with respect to the shares of common stock indicated as beneficially owned by them.
(2)
An executive officer.
(3)
A director.
(4)
Includes 868,750 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(5)
Includes 237,500 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(6)
Includes 120,833 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(7)
Includes 62,500 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(8)
Includes 25,000 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.  Also includes: (i) 1,007,500 shares held in a Partnership of which Mr. Brauser is the General Partner, (ii) 100,000 shares held jointly with his wife and (iii) 475,000 shares held by a trust whereby his wife is the trustee and beneficiary.
 
28

 
(9)
Includes 25,000 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.  Includes shares held in a 401(K) plan whereby Mr. Honig is the trustee.  Also includes 12,500 shares issuable upon the exercise of warrants.  Does not include shares beneficially owned by Mr, Honig’s father, Alan Honig.  Mr. Alan Honig beneficially owns less than 5% of our common stock for various accounts including as custodian for Mr. Barry Honig’s minor children.  Mr. Barry Honig disclaims the beneficial ownership of any shares held by his father, Mr. Alan Honig.
(10)
Includes 37,500 shares issuable upon exercise of options that are exercisable within 60 days of the date of this report.
(11)
Includes 250,000 shares issuable upon exercise of warrants.
(12)
Based on information in a Schedule 13G filed with the SEC which provided beneficial ownership as of December 31, 2009.
 
Item 13.          Certain Relationships and Related Transactions, and Director Independence.
 
In connection with our acquisition of Desktop, we were obligated to pay an additional $1,000,000 upon Desktop achieving certain revenue milestones.  On October 5, 2007 and September 20, 2008, Michael Katz, our President and a director, was paid $643,000 and $357,000, respectively.  Included in our revenues for 2008 was approximately $43,000 from a company controlled by Michael Katz.  

On September 26, 2008, Barry Honig and GRQ Consultants, Inc. 401(k) (an entity controlled by Mr. Honig) loaned interCLICK a total of $1,300,000 and we issued to each $650,000 6% promissory notes.  The notes were secured by a first priority security interest in shares held by us in OPMG.  On November 26, 2008, we repaid the note issued to Mr. Honig.  On December 31, 2008, we repaid $250,000 of the principal amount owed to GRQ and extended the due date of the remaining $400,000 from December 31, 2008 to June 30, 2009.  On June 5, 2009, the Board of Directors approved an extension of the due date of $100,000 of the note from June 30, 2009 until December 31, 2009.  In addition, this $100,000 note which was previously not convertible was made convertible by replacing it with a 6% unsecured note, convertible at $2.00 per share, subject to adjustment for stock splits, stock dividends, combinations and similar events.  In consideration for extending the due date on the $100,000 note and in lieu of a cash payment for interest, we issued GRQ a total of 21,055 shares of common stock with a combined value of $25,266.  On June 22, 2009, we repaid $100,000 of the remaining $300,000 non-convertible note and extended the due date of this remaining $200,000 non-convertible note to December 31, 2009.  On August 19, 2009, we repaid all of the principal and interest owed under the $200,000 note.  On September 29, 2009, we repaid the remaining $100,000 note.
 
Item 14.          Principal Accountant Fees and Services.

Our Audit Committee reviews and approves audit and permissible non-audit services performed by our independent registered public accounting firm J.H. Cohn LLP (“Cohn”) as well as the fees charged for such services. In its review of non-audit service and its appointment of Cohn as our independent registered public accounting firm, the Audit Committee considered whether the provision of such services is compatible with maintaining independence.  Salberg & Co., P.A. (“Salberg”) was our independent registered public accounting firm for 2008 and provided services in 2009 until Cohn was appointed.  Salberg’s services in 2009 consisted of the review of interCLICK's financial statements for the quarters ended March 31 and June 30, 2009 and review of the August 2009 registration statement, the fees for which totaled $86,000.

All of the services provided and fees charged by Cohn and Salberg were approved by the Audit Committee. The following table shows the principal accountant fees for the years ended December 31, 2009 and 2008.

   
2009
   
2008
 
Audit Fees (1)
  $ 109,531     $ 133,000  
Audit Related Fees (2)
  $ 50,944     $ 14,000  
Tax Fees
  $ -     $ -  
All Other Fees
  $ -     $ -  

(1)
Audit fees – these fees relate to the audits of our annual consolidated financial statements and the review of our interim quarterly consolidated financial statements.
(2)
Audit related fees – The audit related fees for the year ended December 31, 2009 and 2008 were for professional services rendered for assistance with reviews of documents filed with the SEC.

29

 
PART IV
 
Item 15.          Exhibits, Financial Statement Schedules.
 
(a)           Documents filed as part of the report.
 
(1)
Financial Statements.  See Index to Consolidated Financial Statements, which appears on page F-1 hereof. The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.

(2)
Financial Statements Schedules.  All schedules are omitted because they are not applicable or because the required information is contained in the consolidated financial statements or notes included in this report.

(3)
Exhibits.

Exhibit
  
  
  
Incorporated by Reference
  
Filed or
Furnished
 
#
  
Exhibit Description
  
Form
  
Date
  
Number
  
Herewith
 
                       
2.1
 
Customer Acquisition Network Agreement of Merger and Plan of Reorganization **
 
8-K
 
9/4/07
 
2.1
     
2.2
 
Desktop Agreement and Plan of Merger **
 
8-K
 
9/4/07
 
2.2
     
3.1
 
Amended and Restated Certificate of Incorporation
 
8-K
 
8/30/07
 
3.1
     
3.2
 
Certificate of Amendment to the Articles of Incorporation
 
8-K
 
7/1/08
 
3.1
     
3.3
 
Certificate of Amendment to the Articles of Incorporation
 
8-A12b
 
11/31/09
 
3.3
     
3.4
 
Bylaws
 
S-3/A
 
11/25/09
 
3.6
     
4.1
 
Form of Warrant dated June 22, 2009
 
10-Q
 
8/11/09
 
4.3
     
10.1
 
Michael Mathews Employment Agreement *
 
8-K
 
9/4/07
 
10.8
     
10.2
 
Amendment to Michael Mathews Employment Agreement *
             
Filed
 
10.3
 
Michael Katz Employment Agreement *
 
8-K
 
9/4/07
 
10.11
     
10.4
 
Amendment to Michael Katz Employment Agreement *
             
Filed
 
10.5
 
Andrew Katz Employment Agreement *
 
10-K
 
3/31/09
 
10.4
     
10.6
 
Roger Clark Employment Agreement *
 
8-K
 
8/13/09
 
10.1
     
10.7
 
David Garrity Consulting Agreement *
                 
10.8
 
Crestmark Accounts Receivable Financing Agreement
 
10-K
 
3/31/09
 
10.23
     
10.9
 
Amendment to Crestmark Accounts Receivable Financing Agreement
 
10-K
 
3/31/09
 
10.24
     
10.10
 
Letter Agreement with Crestmark increasing Line of Credit dated February 3, 2009
 
10-K
 
3/31/09
 
10.25
     
10.11
 
Second Amendment to Crestmark Accounts Receivable Financing Agreement
 
10-K
 
3/31/09
 
10.26
     
10.12
 
Letter Agreement with Crestmark increasing Line of Credit dated August 31, 2009
 
10-Q
 
11/16/09
 
10.5
     
10.13
 
Third Amendment to Crestmark Accounts Receivable Financing Agreement
 
10-Q
 
11/16/09
 
10.6
     
10.14
 
Amended and Restated 2007 Equity Incentive Plan *
 
S-8
 
11/17/09
 
4.1
     
10.15
 
Amended and Restated 2007 Incentive Stock and Award Plan *
 
S-8
 
11/17/09
 
4.2
     
10.16
 
Form of Restricted Stock Agreement *
 
S-8
 
11/17/09
 
4.5
     
10.17
 
Form of Employee Stock Option Agreement *
 
S-8
 
11/17/09
 
4.8
     
   
Form of Directors Stock Option Agreement *
 
S-8
 
11/17/09
 
4.9
     
10.18
 
GRQ Promissory Note dated June 22, 2009
 
10-Q
 
8/11/09
 
4.2
     
10.19
 
Form of Subscription Agreement dated June 22, 2009
 
10-Q
 
8/11/09
 
10.7
     
 
30

 
10.20
 
New York Lease Agreement
             
Filed
 
21.1
 
List of Subsidiaries
             
Filed
 
23.1
 
Consent of J.H. Cohn LLP
             
Filed
 
23.2
 
Consent of Salberg & Co., P.A.
             
Filed
 
31.1
 
Certification of Principal Executive Officer (Section 302)
             
Filed
 
31.2
 
Certification of Principal Financial Officer (Section 302)
             
Filed
 
32.1
 
Certification of Principal Executive Officer and Principal Financial Officer (Section 906)
             
Furnished
 

* Management compensatory plan or arrangement

**The confidential disclosure schedules are not filed in accordance with SEC Staff policy, but will be provided to the Staff upon request.  Certain material agreements contain representations and warranties, which are qualified by the following factors:

 
a.
the representations and warranties contained in any agreements filed with this report were made for the purposes of allocating contractual risk between the parties and not as a means of establishing facts;
 
b.
the agreement may have different standards of materiality than standards of materiality under applicable securities laws;
 
c.
the representations are qualified by a confidential disclosure schedule that contains nonpublic information that is not material under applicable securities laws;
 
d.
facts may have changed since the date of the agreements; and
 
e.
only parties to the agreements and specified third-party beneficiaries have a right to enforce the agreements.

Notwithstanding the above, any information contained in a schedule that would cause a reasonable investor (or that a reasonable investor would consider important in making a decision) to buy or sell our common stock has been included. We have been further advised by our counsel that in all instances the standard of materiality under the federal securities laws will determine whether or not information has been omitted; in other words, any information that is not material under the federal securities laws may be omitted. Furthermore, information which may have a different standard of materiality will nonetheless be disclosed if material under the federal securities laws.
 
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to interCLICK, Inc., 257 Park Avenue South, Suite 602, New York, NY 10010 Attention: Mr. Michael Mathews.

31

 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 31, 2010
         
interCLICK, Inc.
   
  
 
By:  
/s/ Michael Mathews
   
Michael Mathews
   
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
 
Title
 
Date
/s/ Roger Clark
 
Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer)
 
March 31, 2010
Roger Clark
       
         
/s/ Michael Brauser  
 
Co-Chairman
 
March 31, 2010
Michael Brauser
       
         
/s/ Bret Cravatt  
 
Co-Chairman
 
March 31, 2010
Brett Cravatt
       
         
/s/ Barry Honig  
 
Director
 
March 31, 2010
Barry Honig
       
         
/s/ Michael Katz
 
Director
 
March 31, 2010
Michael Katz
       
         
/s/ Michael Mathews
 
Director
 
March 31, 2010
Michael Mathews
       

32

 
InterCLICK, Inc. (Formerly Customer Acquisition Network Holdings, Inc.) and Subsidiary
Index to Consolidated Financial Statements
 
   
Page 
Financial Statements
   
Reports of Independent Registered Public Accounting Firms
 
F-2
Consolidated Balance Sheets – December 31, 2009 and 2008
 
F-4
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008
 
F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2009 and 2008
 
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008
 
F-7
Notes to Consolidated Financial Statements
 
F-9
 
 
F-1

 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
interCLICK, Inc.

We have audited the consolidated balance sheet of interCLICK, Inc. and Subsidiary as of December 31, 2009, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of interCLICK, Inc. and Subsidiary as of December 31, 2009, and their results of operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for certain of its warrants in the period ended December 31, 2009.

/s/ J.H. Cohn LLP
Roseland, New Jersey
March 31, 2010

 
F-2

 
 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders' of:
interCLICK, Inc. (Formerly Customer Acquisition Network Holdings, Inc.)

We have audited the accompanying consolidated balance sheet of interCLICK, Inc. and Subsidiary as of December 31, 2008, and the related consolidated statement of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of interCLICK, Inc. and Subsidiary as of December 31, 2008, and the consolidated results of its operations and its cash flows for the year ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 2 to the consolidated financial statements, the Company reported a net loss of $12,025,539 and used cash in operating activities of $4,151,028 for the year ended December 31, 2008, and had a working capital deficiency and an accumulated deficit of $1,438,181 and $15,258,506, respectively, at December 31, 2008.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.  Management's plans as to these matters are also described in Note 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Salberg & Company, P.A.
 

SALBERG & COMPANY, P.A.
Boca Raton, Florida
March 19, 2009

 
F-3

 

INTERCLICK, INC. (FORMERLY CUSTOMER ACQUISITION NETWORK HOLDINGS, INC.) AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

   
December 31, 2009
   
December 31, 2008
 
Assets
           
             
Current assets:
           
Cash and cash equivalents
  $ 12,653,958     $ 183,871  
Accounts receivable, net of allowance of $383,188 and $425,000, respectively
    21,631,305       7,120,311  
Due from factor
    1,052,167       637,705  
Deferred taxes, current portion
    955,471       -  
Prepaid expenses and other current assets
    367,183       94,164  
Total current assets
    36,660,084       8,036,051  
                 
Property and equipment, net of accumulated depreciation of $597,288 and $ 282,490, respectively
    988,899       596,913  
Intangible assets, net of accumulated amortization of $909,350 and $720,570, respectively
    421,333       610,113  
Goodwill
    7,909,571       7,909,571  
Investment in available-for-sale marketable securities
    715,608       1,650,000